Saturday, November 29, 2008

Erratic and Incompetent Economic Policy

Economists are predicting the recession to cause a $50B deficit. That's if the government doesn't take measures to keep the recession from getting too severe. Inaction could prove to be much more expensive than action.

Chief economists at the Conference Board of Canada and Royal Bank are both urging a stimulus package, along with the IMF, OECD, APEC, G7, G20, and just about every economist, policy maker and commentator in the world.

The government's frantic flipflopping on the economy reveals that they are torn between economic reality and right-wing ideology. Flaherty-Harper recently said they would bring in an "unprecedented" fiscal stimulus; then they said they will not enact any fiscal stimulus (and have even proposed $4.3B in cutbacks for next year). They said that deficits may be necessary; then they said that they will under no circumstances run a deficit. Maybe their strategy is to float ideas and then retreat from them when they get pushback from their base.

The lack of coherent economic policy is just the opposite of what we need. Far from inspiring confidence, this erratic and incompetent government is causing markets and consumers to be very, very worried.

What's the likely next step? Harper's arrogance led him to overplay his hand, putting the Conservatives on the verge of political ostracization. The Conservative caucus and leadership is no doubt having severe second thoughts about the right-wing ideologue who took over their party. To avert disaster, they need to change direction in a way Harper does not want to go: using federal funds to help Canadians. Can they do it without replacing their leader, or at least usurping his power? Wherever the pressure comes from, my expectation is that the Conservatives will switch their policy (again) on fiscal stimulus before the confidence vote occurs.

A final note: As I have argued many times, Stephen Harper is not an economist, despite his attempts to paint himself as one. He has an MA in Economics. I have an MA in Economics, and so I'm very qualified to say that such a degree does not make one an economist. It takes not only more advanced education, but also experience. Harper is a right-wing ideologue, and that is what colors his economic policy. He continues to insist that a GST cut would stimulate the economy, even though every economist in the country told him that is not so, and even though his last GST cuts did not stimulate the economy. Ideologues are not swayed by evidence, no matter how undeniable it is.